What is money?

[Kshartle]

Based on the current economy....the current interest rates....the current debt levels.....the current welfare/warfare state mentality.....loaning my hard-earned money to the government in the hopes of getting any kind of real return.......seems like a really bad deal for me.

Saying that it looked that way last year or the year before or the year before and it didn't work out that is not proof that it's not a bad deal now. That's a logic fail.

"Since it looked like A was likely and A didn't happen there is no reason to think A will happen or is still likely" - This is faulty logic. I'm not attributing this to anyone in particular.

[doodle]

Anthropologist David Graeber wrote a book called "Debt: The first 5000 years"

Perhaps this book would be worthwhile reading...http://www.amazon.com/Debt-The-First-00 ... 5000+years

Here anthropologist David Graeber presents a stunning reversal of conventional wisdom: he shows that before there was money, there was debt. For more than 5,000 years, since the beginnings of the first agrarian empires, humans have used elaborate credit systems to buy and sell goods—that is, long before the invention of coins or cash. It is in this era, Graeber argues, that we also first encounter a society divided into debtors and creditors.

Graeber shows that arguments about debt and debt forgiveness have been at the center of political debates from Italy to China, as well as sparking innumerable insurrections. He also brilliantly demonstrates that the language of the ancient works of law and religion (words like “guilt,”? “sin,”? and “redemption”?) derive in large part from ancient debates about debt, and shape even our most basic ideas of right and wrong. We are still fighting these battles today without knowing it.

If you don't have time to read the book, here is a talk that he gave at Google regarding the book: http://www.youtube.com/watch?v=CZIINXhGDcs

[Libertarian666]

Okay. But that still doesn't affect the fact that a good can only be money if it is the most marketable (liquid) commodity and thus develops a monetary demand as well as a demand for it to use in its role as a commodity.

Tech,

I know gold has some awesome traits, but it's almost like you're assuming that a monetary commodity MUST be the main medium of exchange.  There were a lot of societies that didn't build their monetary economy on gold or some other commodity.

Not saying that this is good or bad. It's just that if money is a social animal, then you (nor I) get to just decide what it is based on some kind of hard economic logic.  Do you or I get to just decide what money is?  If a rich economy that has no reasonable access to commodities wants to make their IOU contracts the main form of medium of exchange, who are we to tell them otherwise?

I'm not trying to tell anyone what to do. I'm just providing my analysis (the Austrian analysis) of money. Money provides the denominator of all prices (e.g., oil sells for 1 g/barrel, a particular car sells for 950 g, etc.) AND allows debt to be extinguished. Without the first of those features, it is impossible to calculate whether a given transaction entails profit or loss, and without the second feature, the economic system is unstable due to the need to constantly increase the money supply to roll over debt. Thus, money is necessary for a sustainable economic system where economic calculation is possible.

Certainly it would be possible for an IOU to provide the first feature; that's similar to the system we have today, although it is more of a "who owes you nothing" and is therefore subject to easy official counterfeiting. But it cannot provide the second feature without causing economic problems due to the contraction of the money supply whenever a contract is fulfilled. Gold doesn't have that problem.

[moda0306]

Okay. But that still doesn't affect the fact that a good can only be money if it is the most marketable (liquid) commodity and thus develops a monetary demand as well as a demand for it to use in its role as a commodity.

Tech,

I know gold has some awesome traits, but it's almost like you're assuming that a monetary commodity MUST be the main medium of exchange.  There were a lot of societies that didn't build their monetary economy on gold or some other commodity.

Not saying that this is good or bad. It's just that if money is a social animal, then you (nor I) get to just decide what it is based on some kind of hard economic logic.  Do you or I get to just decide what money is?  If a rich economy that has no reasonable access to commodities wants to make their IOU contracts the main form of medium of exchange, who are we to tell them otherwise?

I'm not trying to tell anyone what to do. I'm just providing my analysis (the Austrian analysis) of money. Money provides the denominator of all prices (e.g., oil sells for 1 g/barrel, a particular car sells for 950 g, etc.) AND allows debt to be extinguished. Without the first of those features, it is impossible to calculate whether a given transaction entails profit or loss, and without the second feature, the economic system is unstable due to the need to constantly increase the money supply to roll over debt. Thus, money is necessary for a sustainable economic system where economic calculation is possible.

Certainly it would be possible for an IOU to provide the first feature; that's similar to the system we have today, although it is more of a "who owes you nothing" and is therefore subject to easy official counterfeiting. But it cannot provide the second feature without causing economic problems due to the contraction of the money supply whenever a contract is fulfilled. Gold doesn't have that problem.

Actually, debt in products/services is more likely to be sustainable than debt in gold.  There's only so much gold in the world, and eventually, the amount of outstanding debt in gold plus future interest payments in gold will exceed the quantity of gold.

Our ability to produce ever-greater products and services is actually quite feasable, considering technological advancements, so debt repayable by delivery of said economic value is much more sustainable than of a single, limited commodity.

[Kshartle]

The amount of gold is more than sufficient to facilitate all global trade. The only required is a much higher price which is what Tech and I are both viewing as inevitable (If I am putting words in your mouth Tech please tell me).

When I say higher price I'm not talking in dollar terms. I'm talking in relation to all goods and services. Gold is undervalued against everything (my opinion).

The amount of gold borrowed can't exceed the amount of gold in existance unless there is fraud. You can't borrow real money unless it actually exists. Fraud will be sniffed out by the market easily. The FIAT standard is nothing but rampant fraud. That's why we are all hard-wired to think this how it will always be.....i.e. entities loaning out that which they don't have (fractional reserve banking).

[doodle]

When I say higher price I'm not talking in dollar terms. I'm talking in relation to all goods and services. Gold is undervalued against everything (my opinion).

What value does gold really have? Its value is a social construct. In and of itself it is as valueless as paper money. (well, maybe you could use if for jewelry or filling teeth of something) but really it has no practical value...like say a cow or an acre of fertile land.

Besides, gold is an incredibly inefficient and ridiculous way to facilitate business. If gold were to be reinstated as money and revalued to some representative proportion of all the wealth created in the world, how much effort and resources would suddenly be dedicated to digging more gold out of the ground?

Instead of humans investing their efforts in creating real wealth like curing cancer, feeding starving people, and building hospitals and schools....people would be engaged in dredging up the earth in search of a metal that once brought to the surface would be purified and then hoarded away again in underground vaults. The whole process is the height of absurdity.

[Kshartle]

The debt/money, Fiat/fraud standard around the world causes unsustainable bubbles, misallocation, enslavement, poverty, enrichment of the well connected and wealthy at the expense of others, wars and every kind of disgusting thing you can imagine.

It has these perverse consequences not because it is designed to do that (though that might be true) but instead because it is completely and wholly immoral.

Counterfitting is theft. It doesn't matter who does it or for what reason. It doesn't matter if they are elected. It doesn't matter if they have fancy titles, drive fancy cars, live in fancy mansions or speak with fancy words.

Theft is immoral and has perverse and negative consequences. They cannot be escaped. The piper will have to be paid.

The sooner we all pay the piper the cheaper the bill.

That's why I say bring on the collapse and depression. The sooner the better. Today if possible please. Then let's get some morality and we will all be better off.

It's disgusting to me to think that I have a right to tell people what to buy and sell and what to use as money and what they can do for a living. I don't have that right. If I don't have the right I can't transfer it to anyone else. It doesn't matter if every single person on Earth thinks the last person should have their property stolen. It's wrong.

It doesn't matter if we don't know who's going to pick the cotton. Slavery is wrong. Money by fiat is wrong. And it will go away eventually. That is certain.

[Kshartle]

When I say higher price I'm not talking in dollar terms. I'm talking in relation to all goods and services. Gold is undervalued against everything (my opinion).

What value does gold really have? Its value is a social construct. In and of itself it is as valueless as paper money.

Nonsense. Better a social construct that everyone agrees on than a few psychopaths with guns and dungeons.

As valueless as paper money? This statement speaks for itself. Have you read any Harry Browne writings on gold? He explains in all his books why gold has value better than I ever could. I try to avoid quotes and URLs but honestly, it's of such value to read any of his writings...I would encourage EVERYONE to pick up his books if only to read about gold.

[doodle]

kshartle,

All this morality talk has me going back to the foundations of the Christian religion which forbade the lending of money at interest. This is actually why the Jews became so heavily involved in banking because their Christian counterparts were forbidden to make loans. Islam is similar to Christianity in that loans with interest are forbidden.

It is pretty easy to understand mathematically that if interest is charged on a loan, the money supply must be increasing. If only one loan is repaid with interest and all the rest fail, the total money in the system must increase. If you really want to have a completely static money supply, then you must forbid loaning money at interest.

[doodle]

When I say higher price I'm not talking in dollar terms. I'm talking in relation to all goods and services. Gold is undervalued against everything (my opinion).

What value does gold really have? Its value is a social construct. In and of itself it is as valueless as paper money.

Nonsense. Better a social construct that everyone agrees on than a few psychopaths with guns and dungeons.

I forgot what a civilized place Europe was back in the days when money was coined with gold and silver. Our society has been in such moral decline since the days of the Inquisition. It must be all that paper money that has ruined our living standards and turned our present society into such heathens.

How can anyone look at the enormous revolution in productivity over the last 50 years and say that fiat money has been destructive?

[Kshartle]

kshartle,

All this morality talk has me going back to the foundations of the Christian religion which forbade the lending of money at interest. This is actually why the Jews became so heavily involved in banking because their Christian counterparts were forbidden to make loans. Islam is similar to Christianity in that loans with interest are forbidden.

It is pretty easy to understand mathematically that if interest is charged on a loan, the money supply must be increasing. If only one loan is repaid with interest and all the rest fail, the total money in the system must increase. If you really want to have a completely static money supply, then you must forbid loaning money at interest.

Incorrect.

If there are only 100 dollars in closed system (the earth) and I borrow 10 with the promise to return 11 in a year I only have to figure out a way to add services and goods I can trade for 11 so I can repay.

You are thinking in terms of the debt/money/fiat world with money substitues and not actual money (gold or something voluntary).

[doodle]

kshartle,

All this morality talk has me going back to the foundations of the Christian religion which forbade the lending of money at interest. This is actually why the Jews became so heavily involved in banking because their Christian counterparts were forbidden to make loans. Islam is similar to Christianity in that loans with interest are forbidden.

It is pretty easy to understand mathematically that if interest is charged on a loan, the money supply must be increasing. If only one loan is repaid with interest and all the rest fail, the total money in the system must increase. If you really want to have a completely static money supply, then you must forbid loaning money at interest.

Incorrect.

If there are only 100 dollars in closed system (the earth) and I borrow 10 with the promise to return 11 in a year I only have to figure out a way to add services and goods I can trade for 11 so I can repay.

You are thinking in terms of the debt/money/fiat world with money substitues and not actual money (gold or something voluntary).

But after you repay there will have to be 101 dollars in the system. That is math.

[Kshartle]

What value does gold really have? Its value is a social construct. In and of itself it is as valueless as paper money.

Nonsense. Better a social construct that everyone agrees on than a few psychopaths with guns and dungeons.

I forgot what a civilized place Europe was back in the days when money was coined with gold and silver. Our society has been in such moral decline since the days of the Inquisition. It must be all that paper money that has ruined our living standards and turned our present society into such heathens.

Strawman. At least you are consistent.

[Kshartle]

kshartle,

All this morality talk has me going back to the foundations of the Christian religion which forbade the lending of money at interest. This is actually why the Jews became so heavily involved in banking because their Christian counterparts were forbidden to make loans. Islam is similar to Christianity in that loans with interest are forbidden.

It is pretty easy to understand mathematically that if interest is charged on a loan, the money supply must be increasing. If only one loan is repaid with interest and all the rest fail, the total money in the system must increase. If you really want to have a completely static money supply, then you must forbid loaning money at interest.

Incorrect.

If there are only 100 dollars in closed system (the earth) and I borrow 10 with the promise to return 11 in a year I only have to figure out a way to add services and goods I can trade for 11 so I can repay.

You are thinking in terms of the debt/money/fiat world with money substitues and not actual money (gold or something voluntary).

But after you repay there will have to be 101 dollars in the system. That is math.

No you won't. Please explain where the dollar would come from if it didn't exist before. Let's change it to ounces of gold. Assume no more gold can be mined. Work it out, you will get it. I'm saying this in my nicest voice.

[Libertarian666]

kshartle,

All this morality talk has me going back to the foundations of the Christian religion which forbade the lending of money at interest. This is actually why the Jews became so heavily involved in banking because their Christian counterparts were forbidden to make loans. Islam is similar to Christianity in that loans with interest are forbidden.

It is pretty easy to understand mathematically that if interest is charged on a loan, the money supply must be increasing. If only one loan is repaid with interest and all the rest fail, the total money in the system must increase. If you really want to have a completely static money supply, then you must forbid loaning money at interest.

Incorrect.

If there are only 100 dollars in closed system (the earth) and I borrow 10 with the promise to return 11 in a year I only have to figure out a way to add services and goods I can trade for 11 so I can repay.

You are thinking in terms of the debt/money/fiat world with money substitues and not actual money (gold or something voluntary).

No, this is an actual (theoretical) problem with the gold standard if there is no new mined gold to expand the money supply. It is a problem if the following holds:

Total interest owed > spending of the lender(s) + the amount of newly mined gold.

In that case, there is not enough gold to pay the interest.

However, it seems to me that the consequence is that all lenders taken together cannot charge more total interest than they spend + the amount of newly mined gold.

In any event, the alternative of printing money at will has all the bad effects you cite, so I'd rather take my chances with this theoretical problem.

[Pointedstick]

He's actually right, doodle. Let me show you:

- There are 1000 ounces of gold in the economy.
- A bank has 10.
- I have 0.
- I borrow 10 from the bank at 10% interest.
- I use my 10 ounces of gold to buy the best vacuum cleaner in the world and I clean people's carpets so well that they pay me a full ounce of gold per carpet! I clean 11 people's carpets.
- I now have 11 ounces of gold.
- At the end of the year, I repay the loan plus interest; all 11 ounces.

Result: the bank has one more ounce of gold than it did before, I have the same amount of gold but also have an amazing vacuum cleaner, and everyone else in the world collectively has one fewer ounce of gold and one fewer amazing vacuum cleaner.

It doesn't require an increasing money supply, but with a static money supply, it represents a transfer of purchasing power toward lenders and away from borrowers or their customers. As Libertarian666 points out, if lenders don't spend their gains back into the economy, eventually they'll wind up with all the gold.

[Kshartle]

Nonsense. Better a social construct that everyone agrees on than a few psychopaths with guns and dungeons.

I forgot what a civilized place Europe was back in the days when money was coined with gold and silver. Our society has been in such moral decline since the days of the Inquisition. It must be all that paper money that has ruined our living standards and turned our present society into such heathens.

Strawman. At least you are consistent.

A stawman is where you ignore someone's point, invent some other point (Europe was civilized blah blah) and attribute it to someone to knock it down and claim you refuted their original point.

It's super lame. It makes it seem pointless to even read your posts. Therefore I will stop.

[Kshartle]

kshartle,

All this morality talk has me going back to the foundations of the Christian religion which forbade the lending of money at interest. This is actually why the Jews became so heavily involved in banking because their Christian counterparts were forbidden to make loans. Islam is similar to Christianity in that loans with interest are forbidden.

It is pretty easy to understand mathematically that if interest is charged on a loan, the money supply must be increasing. If only one loan is repaid with interest and all the rest fail, the total money in the system must increase. If you really want to have a completely static money supply, then you must forbid loaning money at interest.

Incorrect.

If there are only 100 dollars in closed system (the earth) and I borrow 10 with the promise to return 11 in a year I only have to figure out a way to add services and goods I can trade for 11 so I can repay.

You are thinking in terms of the debt/money/fiat world with money substitues and not actual money (gold or something voluntary).

No, this is an actual (theoretical) problem with the gold standard if there is no new mined gold to expand the money supply. It is a problem if the following holds:

Total interest owed > spending of the lender(s) + the amount of newly mined gold.

In that case, there is not enough gold to pay the interest.

However, it seems to me that the consequence is that all lenders taken together cannot charge more total interest than they spend + the amount of newly mined gold.

In any event, the alternative of printing money at will has all the bad effects you cite, so I'd rather take my chances with this theoretical problem.

You are wrong.

If there are only 100 ounces of gold, with no hope of getting more I can still borrow 10 and promise to pay back 11. I only need to figure out a way to get people to trade 11 to me. I have to create VALUE...not gold.

[Kshartle]

He's actually right, doodle. Let me show you:

- There are 1000 ounces of gold in the economy.
- A bank has 10.
- I have 0.
- I borrow 10 from the bank at 10% interest.
- I use my 10 ounces of gold to buy the best vacuum cleaner in the world and I clean people's carpets so well that they pay me a full ounce of gold per carpet! I clean 11 people's carpets.
- I now have 11 ounces of gold.
- At the end of the year, I repay the loan plus interest; all 11 ounces.

Result: the bank has one more ounce of gold than it did before, I have the same amount of gold but also have an amazing vacuum cleaner, and everyone else in the world collectively has one fewer ounce of gold and one fewer amazing vacuum cleaner.

It doesn't require an increasing money supply, but with a static money supply, it represents a transfer of purchasing power toward lenders and away from borrowers or their customers. As Libertarian666 points out, if lenders don't spend their gains back into the economy, eventually they'll wind up with all the gold.

Thank you PS. I did not have the patience to properly walk through every detail. I was hoping everyone would read between the lines and the steps would be speak for themselves since it is a basic concept.

[Kshartle]

Incorrect.

If there are only 100 dollars in closed system (the earth) and I borrow 10 with the promise to return 11 in a year I only have to figure out a way to add services and goods I can trade for 11 so I can repay.

You are thinking in terms of the debt/money/fiat world with money substitues and not actual money (gold or something voluntary).

No, this is an actual (theoretical) problem with the gold standard if there is no new mined gold to expand the money supply. It is a problem if the following holds:

Total interest owed > spending of the lender(s) + the amount of newly mined gold.

In that case, there is not enough gold to pay the interest.

However, it seems to me that the consequence is that all lenders taken together cannot charge more total interest than they spend + the amount of newly mined gold.

In any event, the alternative of printing money at will has all the bad effects you cite, so I'd rather take my chances with this theoretical problem.

You are wrong.

If there are only 100 ounces of gold, with no hope of getting more I can still borrow 10 and promise to pay back 11. I only need to figure out a way to get people to trade 11 to me. I have to create VALUE...not gold.

Sorry for the harsh tone. I'm under the gun here at work and yet I don't want to leave this concept wanting. We cannot afford to have people confused about this principle or we start back at square one and never get any interesting conversation.

[Libertarian666]

Incorrect.

If there are only 100 dollars in closed system (the earth) and I borrow 10 with the promise to return 11 in a year I only have to figure out a way to add services and goods I can trade for 11 so I can repay.

You are thinking in terms of the debt/money/fiat world with money substitues and not actual money (gold or something voluntary).

No, this is an actual (theoretical) problem with the gold standard if there is no new mined gold to expand the money supply. It is a problem if the following holds:

Total interest owed > spending of the lender(s) + the amount of newly mined gold.

In that case, there is not enough gold to pay the interest.

However, it seems to me that the consequence is that all lenders taken together cannot charge more total interest than they spend + the amount of newly mined gold.

In any event, the alternative of printing money at will has all the bad effects you cite, so I'd rather take my chances with this theoretical problem.

You are wrong.

If there are only 100 ounces of gold, with no hope of getting more I can still borrow 10 and promise to pay back 11. I only need to figure out a way to get people to trade 11 to me. I have to create VALUE...not gold.

Yes, but what happens once the lender has all the gold? That will necessarily happen eventually if their interest income in excess of their spending, in gold ounces, is more than the amount of newly mined gold, as they will be consistently reducing the amount of gold in the rest of the system.

Again, I don't know of any case in history where this has been a real problem, and I'm willing to take the chance that it will be a problem, given the real and horrible consequences of paper money. But it doesn't help our position to deny mathematical reality.

[Kshartle]

No, this is an actual (theoretical) problem with the gold standard if there is no new mined gold to expand the money supply. It is a problem if the following holds:

Total interest owed > spending of the lender(s) + the amount of newly mined gold.

In that case, there is not enough gold to pay the interest.

However, it seems to me that the consequence is that all lenders taken together cannot charge more total interest than they spend + the amount of newly mined gold.

In any event, the alternative of printing money at will has all the bad effects you cite, so I'd rather take my chances with this theoretical problem.

You are wrong.

If there are only 100 ounces of gold, with no hope of getting more I can still borrow 10 and promise to pay back 11. I only need to figure out a way to get people to trade 11 to me. I have to create VALUE...not gold.

Yes, but what happens once the lender has all the gold? That will necessarily happen eventually if their interest income in excess of their spending, in gold ounces, is more than the amount of newly mined gold, as they will be consistently reducing the amount of gold in the rest of the system.

Again, I don't know of any case in history where this has been a real problem, and I'm willing to take the chance that it will be a problem, given the real and horrible consequences of paper money. But it doesn't help our position to deny mathematical reality.

No need to worry. The lender will want to buy stuff. He/she will trade gold for stuff.

Money..REAL money makes the world go 'round!

No problems with gold as money. Works just fine.

[Libertarian666]

You are wrong.

If there are only 100 ounces of gold, with no hope of getting more I can still borrow 10 and promise to pay back 11. I only need to figure out a way to get people to trade 11 to me. I have to create VALUE...not gold.

Yes, but what happens once the lender has all the gold? That will necessarily happen eventually if their interest income in excess of their spending, in gold ounces, is more than the amount of newly mined gold, as they will be consistently reducing the amount of gold in the rest of the system.

Again, I don't know of any case in history where this has been a real problem, and I'm willing to take the chance that it will be a problem, given the real and horrible consequences of paper money. But it doesn't help our position to deny mathematical reality.

No need to worry. The lender will want to buy stuff. He/she will trade gold for stuff.

Money..REAL money makes the world go 'round!

No problems with gold as money. Works just fine.

Yes, in practice that is probably true, but we should acknowledge the potential for this problem to occur. Otherwise we weaken our positions vis-a-vis those who deny the real, terrible problems of paper money.

[Kshartle]

BTW.......if one person got all the gold.....and refused to volutarily trade it......gold would be exposed as not a very good form of money. Something else would prove to be better. Trade would not stop.


Ahhhhh but since the notion is completely absurd we don't even need to think about it.

[Gumby]

You are wrong.

If there are only 100 ounces of gold, with no hope of getting more I can still borrow 10 and promise to pay back 11. I only need to figure out a way to get people to trade 11 to me. I have to create VALUE...not gold.

Yes, but what happens once the lender has all the gold? That will necessarily happen eventually if their interest income in excess of their spending, in gold ounces, is more than the amount of newly mined gold, as they will be consistently reducing the amount of gold in the rest of the system.

Again, I don't know of any case in history where this has been a real problem, and I'm willing to take the chance that it will be a problem, given the real and horrible consequences of paper money. But it doesn't help our position to deny mathematical reality.

No need to worry. The lender will want to buy stuff. He/she will trade gold for stuff.

Money..REAL money makes the world go 'round!

No problems with gold as money. Works just fine.

Seems weird that it all works fine and dandy with gold, but not with credit. In a credit-based society, the lenders aren't constantly spending base/real money into the economy. So, credit just gets ratcheted up...

[align=center][/align]

So, tech was correct. If the lenders don't spend people need to borrow more on a Macro level to pay the interest — and that seems to happen with credit-money in our reality (as private credit keeps expanding and expanding and expanding...).